Is serving streamies a costly obligation
or an opportunity for service?Cause for optimism in the great streaming debate

Commentary originally published
in Current, May 13, 2002By Mark Fuerst

Since Internet services emerged as a small and costly part of its service
repertoire, public radio has viewed streaming with equal parts optimism
and revulsion. Optimism because streaming offered a way to achieve one
of public radios most cherished goals, namely universal distribution
of multiple program streams. And revulsion for two reasons: cost and
potential competition.

Streamingat least until nowhas meant scandalously high
bandwidth costs to reach a relatively small audience. And if streaming
ever took hold, every station would face boundless new competition,
from other stations around the world, from new services without transmitters,
andhorror of horrorsfrom public radios own networks.

Recently, revulsion seemed to be in the ascendancy. The costs were
too high, the audience and return on investment too low.

Still, in this atmosphere of ambivalence, there are optimists trying
to make streaming work and theres new evidence that streaming
can cost less than expected and pull in new revenues to support those
costs.

I work with one group now tilting toward optimism, the M*STAR Project,
a CPB-funded multistation effort to figure out a strategy for public
radio music streaming.

M*STAR brings together the Public Radio Internet Station Alliance (PRISA)
and a set of "core stations," including Internet pioneer WKSU in Kent,
Ohio; the countrys leading Native station, KNBA in Anchorage;
and two of the systems heaviest streamers, WXPN in Philadelphia
and KPLU in Tacoma. Earlier this year, these stations were joined by
four other music-oriented stations for at least part of the researchWFUV
in New York; KEXP in Seattle; WPFK in Louisville; and WWOZ in New Orleans.

We looked at streaming volumes, costs and revenues and asked eight
major streaming providers for quotes on bandwidtha comparative
shopping exercise that produced an almost unbelievable range of prices.
Most recently, the eight stations launched a survey, asking their streamies,
as we call these little-known new listeners, about how they use the
streams, how they found them and whether they like the service enough
to help pay for it.

Our findings are supported by information from other sources, including
the stream-monitoring service MeasureCast and the Edison/Arbitron Research
Reports on webcasting.

The Edison/Arbitron reports were an important inspiration for developing
the M*STAR project. It was Edison principal Larry Rosin, one of the
first analysts to place audio streaming at the center of radios
web strategy, who championed the idea of streaming "side-channels"niche-oriented
extensions of a stations main format. In fall 2000, Rosin surveyed
14,700 radio website visitors at 33 station sites and concluded: "For
stations that want to build a legitimate web presence, streaming is
essential. . . . 64 percent of the radio station website visitors surveyed
said that they were very interested in listening to radio stations via
the Internet."

Our M*STAR surveys so far have collected almost 9,000 responses for
analysis in a preliminary report to CPB this month. The findings reflect
the experience of only a few stations over a short period, but they
nevertheless point to opportunity: a growing audience, the prospect
of lower costs and a new stream of audience-based revenues.

Growth: At the largest stations
in the project, online listenership increased steadily over the last
18 months. KPLU, a streaming leader with relatively large volume for
several years, saw its streaming double (up 104 percent) since Jan.
1, 2001. In the same period, streaming at WFUV more than tripled (up
230 percent), and streaming at WXPN multiplied by a factor of five (up
429 percent).

While the streaming audience is still comparatively small by terrestrial
broadcast standards, it is not insignificant. The maximum number of
simultaneous connectionsa kind of peak average quarter-hour audiencehovers
around 2,000 for both WXPN and KPLU and around 1,500 for WFUV. So these
streams are now attracting the audience of a small-city station, and
they appear to be growing well beyond that size.

Streaming costs:The cost of serving these listeners has been painfully high.
In early 2002, WFUV was paying about $6,700 a month; KPLU shelled out
almost $10,000 a month; WXPN ran up bills of more than $12,000 a month.
(Ouch!) The costs are different because the stations have not only different
volumes but different rates in their contracts with bandwidth providers.
Stations agree in advance to purchase a specific volume of streaming
for a set fee each month. If they exceed this target, they pay "overage"
charges, which can often be usurious.

However excited stations may have been about the early growth of their
streams, the ever-rising costs have been equally discouraging, to say
the least.

Revenue: Only one thing brightened
the picture recently: with encouragement from the M*STAR project, they
began to analyze membership records, and they discovered that streams
were beginning to attract membership revenue.

Revenue varied widely among the participants, but the two largest stationsKPLU
and WXPNeach reported more than $100,000 in stream-related member
revenue in the six months between Sept. 1, 2001 and Feb. 28, 2002. In
the same period, WFUV reported $28,000 in stream-related revenue. KPLU
and WFUV had been tracking stream revenue in their databases, using
a question on their pledge pages and making notes during drives.

Notably, these revenues are almost certainly yielding a surplus above
the stations direct costs of streaming.

Sources of this membership revenue were completely different for KPLU
and WXPN an encouraging finding because it may indicate diverse
revenue possibilities. Ninety-three percent of WXPNs streaming
revenue came from outside the Philadelphia coverage area. For KPLU,
92 percent came from inside the Seattle market. We will analyze these
patterns of audience reach.

Whatever the reasons for the difference, each station has reason to
be optimistic. Each has developed an online service that can generate
a new revenue stream that is completely compatible with its core values
and staff expertise.

Once M*STAR discovered this link between streaming and revenues, project
stations unanimously endorsed continuing the research. Only this time
they want to do more work on methods of converting streamies into members.

The discovery of significant stream-related membership revenuewhich
was completely unexpectedwould have been cause enough for celebration.
But, as we continued with the second phase of the project, we uncovered
a second piece of financial information that may have even more benefit
for more stations.

Shopping for price

What we found in our comparison shopping early this year was that streaming
bandwidth may be purchased at surprisingly low costs. In January and
February we solicited bids for a two-year package of four streaming
channels, with expected growth rates.

The range of the resulting bids was shocking: from as high as $721,580
(using Activate) to as low as $47,443 (using StreamGuys).

Naturally, we were skeptical about the quality and reliability of the
low-price provider (actually, there were several low-priced bids but
we focused on one, StreamGuys). How could someone offer streaming service
for so much less? This had to be a mistake.

Fortunately, we had a chance to find out if the rate was really too
good to be true. Encouraged by our research and their killer streaming
fees, WXPN decided to move its entire streaming operation from VitalStream
to StreamGuys in early March. Within a month, costs dropped from $12,000
a month to $1,800. After two months of "beta testing," WXPN saw no increase
in reported streaming problems and no appreciable degradation in service.
Assuming the relationship continues, the switch to StreamGuys will save
WXPN $150,000 in the next 12 months, compared with their previous contract
with VitalStream (assuming that streaming continues to expand at its
current rate of growth).

KNBA followed suit, moving its stream service from Public Interactive
to StreamGuys, lowering its monthly stream expense from $750 to $250.

Our aim in this part of the work was not to discredit one source and
promote another. It was to increase competition and awareness of alternatives.
As stations become aware of their options, we suspect that many others
will want to revisit their streaming choices.

Of course, cost is not the only factor stations need to consider in
choosing a streaming service. So in Phase 2 of M*STAR, we propose to
monitor cost, quality, reliability and performance across a range of
ordinary streaming providers (one stream per listener), and we propose
to expand our research into "peer-to-peer" technology (one stream to
multiple listeners), as offered by ChainCast, Abacast and Blue Falcon,
which may offer additional cost savings.

Will wider research confirm the optimism?

None of these findings is conclusivewe might even call them field
observations. Both the comparative cost study and the revenue research
need replication, confirmation and expansion. To that end, we have asked
CPB to support additional research into both costs and revenues using
more stations with a wider range of formats, including classical, jazz
and news.

But even if these observations are limited, they are not isolated.
Other information coming from a diverse range of sources points in the
same basic direction: A streaming economy is developing with sustainable
costs and an audience willing to pay for unique service.

For example, on the question of comparative costs, Virgin Free Radio,
the worlds largest streaming audio provider, recently reported
that it reduced costs by 75 percent when it switched to BlueFalcon,
which uses peer-to-peer technology.

While the growth of XPN.org seems remarkable in isolation, MeasureCast,
one of the two primary sources for Internet radio data, recently reported
that overall listening to several hundred Internet radio stations increased
by an average 83 percent in the first four months of 2002 and 510 percent
when compared to January 2001. This comes very close to the growth rates
reported by XPN.org.

Our stream-revenue numbers may seem to come out of nowhere, but they
are consistent with the most recent findings in the Edison/Arbitron
series reported in February: "Those who have ever listened to Internet
audio (audio streamies) show a willingness to pay subscription fees
for the right mix of offerings. Four in ten audio streamies say they
would be willing to pay a small fee for commercial-free content, high-quality
audio or content they cant find anywhere else."

With CPBs agreement to cover the recording industrys copyright
fees for station-based services, this combination of observations and
research, insight and experience suggests that the most painful period
of webcasting may be over, at least for public radio stations that are
poised to gain a revenue foothold using their traditional business model
of voluntary memberships.

All of this positive news may surprise some readers, for it challenges
a widely circulated view of streaming as an interesting but somewhat
meaningless and expensive sideshow, compared with broadcast programming.
Just a few months ago, even some of the managers of M*STAR stations
viewed streaming as a high-tech obligation.

Obligation or opportunity?

This sense of streamings "unimportance" has been reinforced by
the ongoing tracking study conducted by researcher George Bailey that
foundas reported in Current"Internet listeners are virtually
nonexistent . . . [and] only 5 percent of public radio listeners listen
online every week."

So, whos right? Bailey, who dismisses the value of streaming,
or Rosin, who sees streaming as "essential" to a radio website?

To unravel this apparent contradiction, we need to look more carefully
at what our research colleagues are actually saying. The Edison/Arbitron
findings are, at the core, very close to the basic facts uncovered by
Baileys tracking study. Where Bailey found 5 percent of public
radio listeners listening online each week, Edison found that 4 percent
of "all Americans" listen to radio stations online at about the same
time.

If the basic numbers are so similar, why does Rosin see opportunity
where Bailey finds "stagnation?"

In large part, its a classic difference in perspective. Bailey
sees a nearly empty radio audience, while Rosin finds it partially filled.
The optimists can point to a gradual increase in people who have listened
to online radioup from 11 percent in 2000 and 18 percent in 2001
to 25 percent this year.

Bailey is warning broadcasters to avoid distraction from their main
business.

Considering the size of web audiences, he feels there is much more
to be gained by continuing to improve broadcast radio. Rosin, on the
other hand, sees the Internet as a battleground on which webcasters
will compete with broadcasters to control a new medium. In Rosins
view: "If the radio industry does not do what it needs to do to co-opt
this new medium, it leaves Internet audio open to the Ted Turners of
the world."

Each of these perspectives has merit; neither should be considered
the final wordespecially in a field as new and as volatile as
Internet streaming.

The best strategy, in my view, is to invest in moderate-sized pilot
projects that can explore the streaming opportunities that now seem
to be more promising than ever. The downside is minimal.

If we contain costs and build revenues, we can reasonably expect a
good return on investment. If M*STAR only stimulates competition among
bandwidth providers, the system will save hundreds of thousands of dollars
annually. In this debate, we should not lose site of the reason why
many stations embraced streaming in the first place: to expand their
program service. If the costs come down and membership support holds
up, the entire system moves closer to program "diversity through streaming."
There is just no need to choose: We can acknowledge Bailey's caution
and still follow Rosins advice, which can be found in the most
recent Edison/Arbitron report.

"Consumers are using more streaming media than ever before," Rosin
writes. "Our prior studies have shown that consumers would be upset
if their favorite online audio content disappeared due to digital rights
controversies, and they would search for other types of Internet audio
to listen to in its place. Therefore, webcasters with the most compelling
content and strongest brands should maintain their streaming efforts
because they will be most capable of weathering the short-term obstacles
and be best positioned for success when the market matures."

Maintaining and even expanding streaming efforts may be the surest
way to prepare for whatever comes next in the roller-coaster world of
Internet exploration.

Mark Fuerst, a public radio management consultant
based in Rhinebeck, N.Y., is coordinator of the Public Radio Internet
Station Alliance (PRISA) and project director of M*STAR. He previously
managed WXPN in Philadelphia. E-mail: markfuerst@earthlink.net.

Some
major streamers
in public radio

Click a logo
to hear a station's stream (if your computer is equipped for sound
and has streaming software)

Web page posted May 21,
2002
Current
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Copyright 2002